Apply the following rules in solving all homework questions:

• Assume that corporations are subject to a 25% tax rate on all capital gains and ordinary income.
• Individual taxpayers are subject to a 40% tax bracket on ordinary income and a 25% tax bracket on net long-term capital gains.
• An individual can claim a maximum net capital loss of $3,000 per year. The remaining net loss is carried forward indefinitely.
• A corporation can claim a maximum net capital loss of $0. The remaining net loss is carried back up to 3 years and forward up to 5 years.
• In evaluating a stock redemption, shares are attributed to a person from his or her parents, children, grandchildren and spouse.
• The dividends-received deduction, when applicable, is 100% for ownership levels of at least 80%; 65% for ownership of between at least 20% and 80%; and 50% for lesser ownership levels
• None of the taxpayers have capital gains or losses, other than those expressly indicated.

The following information applies to questions 7 - 10:

Demonte and Felicia agreed to form a C corporation called Dee-Fee Corporation on December 1, 2021. Demonte contributed land with a basis of $20,000 and a market value of $50,000. On the same day, Felicia contributed a van with an adjusted basis of $80,000 and a market value of $50,000. The corporation will use this van for making product deliveries. As part of their agreement, Demonte received 45 out of the companys 100 outstanding shares and Felicia received the other 55 shares. Demonte and Felicia are not related to one another.

• 7. Does this transaction have an impact on Demontes tax liability for the year 2021? State yes or no. If yes, further state if it is a tax cost or a tax saving (4 pts).
• 8. What is the corporations basis in the land that Demonte contributed (4 pts)?
• 9. If Demonte resells one-half of his shares in Dee-Fee to Mango, an unrelated party, on December 13, 2022 for $18,000, by what amount will his federal tax liability increase (4 pts)?
• 10. Was it rational or irrational for Demonte to agree to receive fewer shares in Dee-Fee Corporation when the corporation was formed? State rational or irrational and discuss (4 pts).